This document introduces some basic accounting concepts and proposes applying them to develop a new system called Multi Dimension Impact Accounting (MDIA). MDIA would measure the overall state of organizations and places, track changes in their state over time as progress, and evaluate their performance based on resource use and impacts. Key concepts discussed include balance sheets, profit/loss accounts, comparing actual vs standard costs, and marking assets to current market value to determine profit. The goal of MDIA is to facilitate reforming prevailing metrics to more comprehensively measure impacts on people, planet and profits.
The Coffee Bean & Tea Leaf(CBTL), Business strategy case study
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Some basic concepts of accountancy used in MDIA
1. MDIA – Multi Dimension Impact Accounting
MDIA – Multi Dimension Impact Accounting
Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
An initiative for radical reform of the prevailing metrics
Peter Burgess
peterbnyc@gmail.com
Copyright (c) 2013 Peter Burgess
2. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Accounting is Basically Simple
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Every money transaction in the organization is recorded
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The transactions are organized into accounts and added up
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The totals are organized into periodic reports
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From time to time an auditor checks the process
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There are very many transactions, but the process is simple
Copyright (c) 2013 Peter Burgess
3. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Balance Sheet and P&L Accounts
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There are two sorts of accounts
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Balance sheet accounts
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Balance sheet accounts
Profit and loss accounts
Assets
Liabilities
Owner's equity
Profit and Loss accounts
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Revenues
Costs
Profit
Copyright (c) 2013 Peter Burgess
4. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Accounting is Immensely Powerful I
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Financial reports are short
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There is a Balance Sheet … a summary of:
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This summarizes the revenues and costs
There is a Cash Flow statement
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Assets
Liabilities
Owner's equity
There is a Profit and Loss statement
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for a huge organization like GE, summary is three pages
This summarized the flows of money
There is selective detail and explanations
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Some is required by law and regulation
Some is used to explain items in the summary information
Copyright (c) 2013 Peter Burgess
5. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Accounting is Immensely Powerful II
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Same process to report every time
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This makes comparison easy and meaningful
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With comparison it is easy to ask questions
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Good questions results in good answers
Copyright (c) 2013 Peter Burgess
6. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Two Ways to Calculate Profit
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From the Profit and Loss Account
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Add up all the revenues for the period
Add up all the costs for the period
The difference is the profit or loss for the period
From the Balance Sheet
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Get the owner's equity from the beginning of the period
Get the owner's equity from the end of the period
The difference is the profit or loss for the period
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In MDIA progress is similar to profit
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In MDIA state is similar to the balance sheet
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State has both money and value combined
In MDIA change in state is progress
Copyright (c) 2013 Peter Burgess
7. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Example: Metrics for the Place
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State of the place
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Progress … change in state over time
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Its natural resources
Its human resources
Its economic activities
Its public infrastructure
Its organizational infrastructure
Quality of life for people
Impact on planet
Impact on place
Profit for business
Performance
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How big the progress
How much net consumption of non-renewable resources
Copyright (c) 2013 Peter Burgess
8. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Example: Metrics for the Organization
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State of the organization
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The money based balance sheet
The human capital
The value of net social valuadd
Provision for net resource depletion
Provision for environmental degradation
Profit and impact
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The money profit
Direct valuadd for people
Indirect valuadd for family
Indirect valuadd for community
Resource depletion
Environmental degradation
Copyright (c) 2013 Peter Burgess
9. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
State, Progress and Performance
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State
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Is like a balance sheet
Progress
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Change in balance sheet over time
Performance I
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Amount of progress in relation to net change in resources
How much quality of life improved
How much stress on planet reduced
Performance II
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How much progress versus how much progress possible
Copyright (c) 2013 Peter Burgess
10. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Mark to Market
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This allows a balance sheet value change to determine profit
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Mark to market conflicts with other accountancy rules
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Has been used aggressively in the financial sector
It has been allowed by rule makers in accountancy
Balance sheet value is 'lower of cost or market value'
In MDIA the mark to market idea is used as follows:
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An economic activity like education improves a person's skills
Improved skills increase a person's opportunities
This will translate into a better job and more income
The present value of more income is an increase State value
Copyright (c) 2013 Peter Burgess
11. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Standard costs
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A standard cost is the expected cost of an item
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Standard cost accounting simplifies analysis
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But does not detract from the utility of analysis
Variance analysis
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It is the theoretical engineering cost; and
A provision for operating inefficiencies
Actual costs versus standard costs produces a variance
This can be done at a higher level than the individual item
When there is a material difference it is time for inquiry
Otherwise no need for inquiry
In MDIA a similar approach is used for standard values
Copyright (c) 2013 Peter Burgess
12. Some Basic Concepts from Accountancy
Some Basic Concepts from Accountancy
Invitation
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MDIA is a big idea
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It facilitates radical reform of the prevailing metrics
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The next steps are mainly associated with technology
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Old fashioned easy information also has value
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How to build the standard value database
How to build a database of 'state of place'
How to build a database of 'impact of product'
Getting this organized and into a database
Please get in touch. Please help
Peter Burgess – TrueValueMetrics
peterbnyc@gmail.com
http://www.truevaluemetrics.org
Copyright (c) 2013 Peter Burgess